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Personal super contributions and the 10% test

With Labor threatening to reinstate the 10 per cent test if elected, SMSF clients may want to make the most of their ability to claim deductions for personal contributions this financial year, says a technical expert.

BDO partner, superannuation, Mark Wilkinson said that clients who are deriving assessable income of any description should be looking to see whether it’s in their interest to make a personal super contribution given the removal of the 10 per cent test.

Prior to the removal of the test from 1 July 2017, the 10 per cent test prevented individuals from being able to claim a tax deduction for personal super contributions if more than 10 per cent of their income was earned from employment, Mr Wilkinson explained.

“So, it’s now a lot easier to claim a deduction this year, but people need to work out whether that’s beneficial,” he said.

Labor has announced that if it wins the next federal election, it will reintroduce the 10 per cent test, which will see personal contributions restricted again.

“The reinstatement of the 10 per cent test would be a bad move that doesn’t make any sense. I just don’t see the justification,” Mr Wilkinson said.

Labor’s plans to bring back the 10 per cent test have copped considerable backlash from the SMSF industry, with SuperConcepts non-executive director Stuart Forsyth labelling it as a retrograde step.

Mr Forsyth said previously that the removal of the 10 per cent test was very much welcomed by the ATO and everybody else because it essentially put everybody in the same position in terms of being able to make a concessional contribution provided they’ve got assessable income.

“I think it’s a policy that would be a retrograde step. I don’t see why it matters whether assessable income is from salary or wages or from other sources. It doesn’t seem to be material and it seems to be a decision to be motivated by the desire to reduce the cost of the concession,” Mr Forsyth said.

He also noted that reintroducing the 10 per cent test now would be especially problematic given the total superannuation balance rules.

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